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How the New Paycheck Protection Program Helps Small Businesses

By January 12, 2021September 5th, 2022No Comments
Small business workers working inside an office

On December 27, 2020, the second round of the Paycheck Protection Program (PPP) was signed into law. The deal is an update on the original PPP, which ran from March through August of 2020. The newest version of the PPP sets aside $284 billion for small businesses that can prove financial strain due to the COVID-19 pandemic.

While the first round of the PPP provided much-needed relief to companies suffering from the pandemic’s financial downturn, it also drew criticism for not fully meeting the needs of U.S. small to medium-sized businesses (SMBs). Lawmakers addressed these critiques by updating the newest round of the program to be more SMB-friendly. Read on to discover how the new PPP improves upon its predecessor in three key ways.

Larger Companies Are Not Eligible for Second Loans

The first round of the PPP set aside $669 billion in forgivable loans for small businesses affected by the pandemic. However, legal loopholes allowed larger companies to drain a sizable amount of money earmarked for smaller businesses.

Companies with up to 500 employees were eligible for the first round of PPP loans. For franchises, the limit was 500 employees per location. Furthermore, applicants did not have to prove the pandemic financially hurt them to receive funding.

Due to these lax standards, over 250 large publicly traded companies, including AutoNation, Shake Shack, and Ruth’s Chris Steakhouse, absorbed nearly $1 billion in loans during the first round of PPP. Though some of these companies ended up returning money, they delayed and complicated the process for smaller borrowers.

The newest round of the PPP stipulates that publicly traded companies are no longer eligible to receive loans. Additionally, only companies with 300 employees or less can apply for a second PPP loan. These companies must be able to prove they have seen at least a 25% year-over-year revenue drop in at least one quarter of 2020.

The recent PPP deal also includes a maximum of $2 million per loan, while the first round had a $10 million cap. That means businesses may receive loans up to 2.5 times the average of their monthly payroll costs, not exceeding $2 million. The lower cap ensures that more companies will have access to PPP money, rather than consolidating loans to a smaller pool of larger companies.

Easier Payroll Relief Forgiveness Criteria

The original PPP loans were forgivable if business owners met certain criteria. One unpopular stipulation for forgiveness in the first round required businesses to spend 75% of their loans on payroll costs within the first eight weeks. This requirement created challenges for SMBs that needed the loan to cover expenses beyond payroll or needed to stretch their loan to last beyond eight weeks.

Congress has implemented more business-friendly standards for the most recent round of PPP. Now, businesses must dedicate only 60% of their funds on payroll relief within 24 weeks to remain eligible for loan forgiveness. By decreasing the payroll percentage requirement while extending the time frame, the new PPP makes it easier for SMBs to extend the lifespan of their loans.

Outside of the 60% required to be spent on payroll, the new PPP deal also broadens the list of other forgivable expenses. New eligible costs include:

    • Gear, workplace moderations, or supplies to protect workers from COVID-19, such as PPE (personal protective equipment)
    • Operations expenditures like software or cloud services that enable remote work
    • Property damage costs incurred during 2020
    • Supplier costs

Simplified PPP Process 

Companies reported difficulties with several administrative aspects of the original PPP: notably, applying for loans, dealing with taxes, and receiving loan forgiveness. The second round of PPP provides good news for SMBs on all three fronts.

During the first round of PPP, companies had trouble receiving loans if they did not have relationships with banks. The new PPP deal is designed to make the loan process easier for these companies. Lawmakers set aside $30 billion for community lenders and small depository lenders, who specialize in serving companies applying for first-time loans.

The newest PPP loans are also non-taxable as long as companies meet the loan forgiveness criteria. Absolving companies from paying taxes on PPP loans simplifies companies’ accounting processes while keeping more money in businesses’ pockets. Furthermore, the new PPP clarifies that companies can take tax deductions on loan money used toward business expenses.

The loan forgiveness process is straightforward under the new PPP. Companies that receive funds under $150,000 will now only have to complete a simple, one-page form. Previously, companies were required to present complicated math showing how they had used PPP funds. The new form requires only a description of the number of employees the loan enabled the company to keep on staff, along with the total loan amount and an estimate on how much of the loan the company spent on payroll costs.

Diversify Revenue Streams by Expanding Into New Markets

For U.S. companies struggling financially during the pandemic-induced economic downturn, the second round of the PPP provides a critical injection of capital. While some companies seek funds to avoid laying off employees or downsizing operations, others search for ways to create new revenue streams—both during and after the pandemic. That’s why some companies are looking to expand into foreign economies, growing their market share today while setting themselves up for continued success tomorrow.

Reach out to Velocity Global today to find out how going global can help you weather the challenges of the current economic situation—and take advantage of new opportunities in the future.